KB Home ends 2010 with $1.02 billion of cash after land investments

By Jennifer Lanning Drey

Savannah, Ga., Jan. 7 - KB Home ended fiscal 2010 with $1.02 billion of cash, cash equivalents and restricted cash after spending $560 million on land and land development during the year, Jeffrey Mezger, the company's chief executive officer, reported Friday during KB Home's fourth-quarter earnings conference call.

"Our strong and liquid balance sheet has allowed us to opportunistically reinvest in highly desirable sub markets at lower prices - the kind of investments that can not only perform in today's market, but have the potential for even greater margins or higher absorption rates as the market improves over time," Mezger said.

The company's focus remains on finished lots or fully entitled land that can quickly go from land closing to housing revenue, he said.

KB Home posted fourth-quarter revenues of $451.0 million, down from $674.6 million in the fourth quarter of 2009.

Fourth-quarter deliveries of 1,918 homes were impacted by an unexpected increase in the cancellation rate, primarily due to a more cautious underwriting mortgage environment, Mezger said.

Margins over volume

As it has done in the past, KB Home continued to emphasize profit over volume during the fourth quarter, remaining disciplined in its pricing, the CEO said.

"We will continue to evaluate the tradeoff of sales pace versus margin depending on demand as we enter the selling season," he said.

Margins improved in the fourth quarter due to disciplined pricing, as well as an increased proportion of deliveries coming from higher-priced communities in California and improved operating efficiencies and product mix, Jeff Kaminski, KB Home's chief financial officer, said during the call.

KB Home's homebuilding business generated operating income of $29.1 million for the quarter ended Nov. 30, up from an operating loss of $81.5 million for the year-earlier quarter. The company said the improvement was largely due to a higher housing gross margin and lower selling, general and administrative expenses, asset impairment and land option contract abandonment charges and losses from land sales.

Positioned for profitability

Looking forward into the new year, the company feels confident that its business strategy and results have positioned it to be profitable, Mezger said.

"If the market gains strength, we're poised to generate upside. If the market does not strengthen, then we will react accordingly and make adjustments. We are both optimistic and cautious, but, above all, we are prepared for whatever the future holds," he said.

KB Home reported fourth-quarter net income of $17.4 million. The figure compares with net income of $100.7 million, which included an income tax benefit of $191.7 million.

KB Home is a Los Angeles-based builder of single-family homes.

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